Commodity Trend v. Commodity Futures Trading, s. 99-4142
| Citation | 233 F.3d 981 |
| Decision Date | 28 November 2000 |
| Docket Number | 99-4143,Nos. 99-4142,s. 99-4142 |
| Parties | (7th Cir. 2000) Commodity Trend Service, Inc., Plaintiff-Appellant, v. Commodity Futures Trading Commission, Defendant-Appellee. Commodity Futures Trading Commission, Petitioner-Appellee, v. Dennis Blitz and Nick Van Nice, Respondents-Appellants. In Re: CTS Financial Publishing, Inc., f/k/a Commodity Trend Service, Inc., Dennis Blitz, Nick Van Nice, and Dearborn Financial Publishing, Inc., Petitioners. & 00-3734 |
| Court | United States Courts of Appeals. United States Court of Appeals (7th Circuit) |
Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 97 C 2362 & 98 C 6057--Wayne R. Andersen, Judge.
Petition for Writ of Injunction against the Commodity Futures Trading Commission No. 00-34
[Copyrighted Material Omitted]
[Copyrighted Material Omitted] William J. Nissen (argued), Sidley & Austin, Chicago, IL, for Commodity Trend Services, Inc., Dennis Blitz, Nick Vannice, CTS Financial Publishing, Inc., Dearborn Financial Publishing, Inc.
Martin B. White, Commodity Futures Trading Com'n, Office of the General Counsel, Washington, DC, for Commodity Futures Trading Com'n in Nos. 99-4142 and 99-4143.
Daniel Waldman, Commodity Futures Trading Com'n, Office of the General Counsel, Washington, DC, Susan A. Berkowitz, Commodity Futures Trading Com'n, Chicago, IL, for Commodity Futures Trading Com'n in No. 00-3734.
Before Flaum, Chief Judge, and Ripple and Kanne, Circuit Judges.
Plaintiff Commodity Trend Service, Inc., now known as CTS Financial Publishing, Inc. ("CTS"), appeals the determination that it is subject to the antifraud provisions of the Commodity Exchange Act ("CEA"). The principals of CTS, Dennis Blitz and Nick Van Nice, appeal the enforcement of an administrative subpoena issued by the Commodity Futures Trading Commission ("CFTC"). For the reasons stated herein, we affirm both of the district court's decisions.
CTS provides impersonal advice about the commodities markets to its customers through a number of publications and other means, such as faxes and telephone messages. CTS does not tailor its advice based on the particular circumstances or financial goals of its customers, nor does it execute any trades on their behalf. In addition to these products, CTS distributes advertisements that provide both information regarding its wares and testimonials about the profits that can be generated by following CTS's recommendations. In July 1996, the CFTC began investigating CTS to determine whether the business should be required to register as a commodity trading advisor ("CTA") under 7 U.S.C. sec. 6m. The CFTC sought to subpoena a wide range of documents from Nice and Blitz regarding CTS's advertisements, publications, and other products. CTS filed a complaint claiming on First Amendment grounds that the CEA's registration requirements were both overbroad and could not be applied to CTS. The district court held that CTS's claims were unripe, but we reversed in the first decision regarding this case. See Commodity Trend Serv. v. CFTC, 149 F.3d 679 (7th Cir. 1998).
On remand, CTS continued its facial and as-applied First Amendment challenges to the registration requirements and added new arguments attacking 7 U.S.C. sec. 6b and 7 U.S.C. sec. 6o, which are antifraud provisions of the CEA, as well as 17 C.F.R. sec. 4.41, which is an antifraud regulation promulgated by the CFTC that applies to advertising. After considering CTS's arguments, the district court found that the registration requirements of the CEA as applied to an impersonal advisor such as CTS are a prior restraint that violates the Constitution. However, the court also held that sec. 6o and Regulation 4.41 apply to CTS, rejecting CTS's statutory and constitutional arguments (the court did not reach the question of whether sec. 6b covers CTS). On the basis of its decision, the district court granted the CFTC's motion to enforce its administrative subpoenas to the extent that the CFTC was seeking to investigate CTS regarding activities prohibited by the CEA's antifraud laws. The court denied CTS's motion to stay the enforcement of the subpoenas pending this appeal, and CTS was required to turn over various products and documents to the CFTC.
CTS appeals the district court's decision that it is subject to the CEA's antifraud provisions, and Nice and Blitz appeal the subpoena enforcement based on that decision.1 CTS does not challenge the determination that it falls within the definition of a CTA. Shortly before oral argument in this case, the CFTC, in part because of the materials discovered through its subpoenas, issued a complaint against CTS, initiating an administrative enforcement proceeding. CTS filed a motion to enjoin these proceedings until this court decided the instant case. CTS's request for an injunction is rendered moot by this decision.
This case presents three stages of analysis. Initially, we must determine whether CTS's challenges are ripe for resolution by the courts. If this case is ripe, then we must consider if two provisions of the CEA and one CFTC regulation apply to CTS as a matter of statutory interpretation. Finally, if CTS is covered by any of these statutes or regulations, we must determine whether these laws are constitutional as applied to CTS.
The CFTC argues that neither CTS's statutory and as-applied First Amendment challenges nor its identical claims in the subpoena enforcement proceeding are ripe for judicial decision. Analyzing each case under the applicable legal standards, we reject the CFTC's contentions and find that both cases are susceptible of judicial resolution with the exception of one constitutional issue discussed below.
The legal standards for determining when an as-applied constitutional challenge is ripe are set forth in Commodity Trend Service, 149 F.3d at 688-90, and need not be reiterated at length here. An administrative determination is ripe for review if (1) it is fit for judicial resolution, and (2) the parties would endure hardship from the withholding of court consideration. See Ohio Forestry Ass'n v. Sierra Club, 523 U.S. 726, 733 (1998) (citing Abbott Labs. v. Gardner, 387 U.S. 136, 149 (1967)). CTS is still suffering from the same hardships of curbing the content of its publications, being chilled from engaging in speech, and undergoing costly compliance with the CFTC's investigation that we previously found sufficient to satisfy the hardship prong of the Abbott Laboratories test. 149 F.3d at 689-90. Thus, the second part of the ripeness test is satisfied.
The CFTC focuses its challenge on the first part of the ripeness determination. The CFTC claims that this case presented a purely legal question the first time because CTS admitted that it was covered by the registration requirements of sec. 6m, and so no facts were in dispute. By contrast, in the current stage of this litigation, CTS does not admit that it is committing fraud punishable under the relevant provisions of the CEA. The CFTC argues that further factual development through administrative procedures in order to determine whether CTS is committing fraud is necessary before a court should intervene.
The CFTC's argument is foreclosed by this court's prior decision, where we held that a case is ripe under Abbott Laboratories when Babbitt v. United Farm Workers Nat'l Union, 442 U.S. 289 (1979) is satisfied. 149 F.3d at 687 & n.3. In Babbitt, the plaintiffs challenged a statute that made "dishonest, untruthful, and deceptive publicity" an unfair labor practice when used to discourage consumers from purchasing agricultural products. 442 U.S. at 301. The plaintiffs alleged that they did not deliberately intend to publicize falsely, but that erroneous statements are inevitable in the course of public speaking. These innocent falsehoods could subject the plaintiffs to prosecution under the statute, which could be avoided only by the plaintiffs curtailing the exercise of their First Amendment rights. The Supreme Court stated that these circumstances were sufficient for the plaintiffs to have a reasonable fear of prosecution and that no further factual development was necessary. The Court thus held that the challenge in Babbitt was ripe. Id. at 302.
CTS's position is identical in all relevant respects to the Babbitt plaintiffs. CTS alleges that it does not intend to make false statements about the commodities markets, but given the volume of its publications some misstatements are inevitable. Such falsehoods would subject them to administrative investigation and proceedings by the CFTC. Because CTS had a reasonable fear of being subject to administrative proceedings at the time CTS filed its complaint, given CFTC's investigation and subpoenas, no further factual development is necessary. We hold that the purely legal question presented by CTS's challenge--namely, is an impersonal trading advisor subject to the fraud provisions of the CEA--combined with these facts showing a reasonable fear of prosecution satisfy the first part of the Abbott Laboratories test. Thus, CTS's complaint is ripe.
A court exercises only limited review of an agency's actions in a subpoena enforcement proceeding and does not normally consider the merits of a party's claim that it has not violated a statute administered by the agency. As a general rule, courts enforce an administrative subpoena if: (1) it reasonably relates to an investigation within the agency's authority, (2) the specific inquiry is relevant to that purpose and is not too indefinite, (3) the proper administrative procedures have been followed, and (4) the subpoena does not demand information for an illegitimate purpose. See CFTC v. Tokheim, 153 F.3d 474, 477 (7th Cir. 1998); EEOC v. Quad/Graphics, Inc., 63 F.3d 642, 645 (7th Cir. ...
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